Unpaid Wages - Interpreting the Contract

The Court of Appeal recently made an important decision for workers pursuing claims for unpaid wages.

The law (Employment Rights Act 1996, section 13) gives workers the ‘right not to suffer unauthorised deductions’. In other words, the worker has the right to make a claim in the Employment Tribunal for wages which they are owed, and which the employer has failed to pay them.

What if there is a dispute as to whether the wages are in fact properly owed under the worker’s contract? The obvious answer is that the Employment Tribunal should determine what amount is properly owed under the contract, so as to determine whether the employer has made a deduction from it, and whether such deduction is unlawful.

Surprisingly, this common-sense approach was denied in a line of cases which held that, where there was a dispute over the construction of the terms of the contract, the worker was compelled to go to the County Court or High Court to resolve the matter. (Yes, I know, it does sound daft).

Sanity was restored by the decision of the Court of Appeal in Agarwal v Cardiff University [2018] EWCA Civ 2084. Ms Agarwal is a consultant urological surgeon paid by the university. As a result of a dispute arising from a long period of sickness absence, the university withheld part of her salary. It did so because of the view of the body providing them with funds for her salary that she was not contractually entitled to be paid for her clinical duties. 

She brought proceedings in the Employment Tribunal for unauthorised deduction from wages. At a preliminary hearing, the Regional Employment Judge held that the ET had no jurisdiction to determine the underlying contractual dispute. That decision was upheld when Ms Agarwal appealed to the Employment Appeal Tribunal. She appealed further to the Court of Appeal, which heard her case, together with a similar legal issue in a case generally referred  to as Nexus.

Underhill LJ summarised the issues as follows:

1.  Was the sum claimed ‘properly payable’ - meaning payable pursuant to a legal obligation, usually under the contract of employment?
2.  Any question as to whether the sum in question is ‘properly payable’ must be resolved by the ET. That necessarily means, in a case where it arises, that it must resolve any dispute as to the contract relied on.
3.  Once the ET has decided whether there has been a deduction, it must consider whether it was lawful e g authorised by contract, statutory provision or prior agreement by the worker. 

He stated that Delaney v Staples [1991] ICR 331, to which the ET and EAT in Agarwal  had not been referred, were binding authority  that the ET had jurisdiction to resolve any issue necessary as to the meaning of the contract of employment so as to determine whether a sum claimed as deduction was wages was properly payable. Appellate decisions to the contrary had wrongly confused decisions on this right, contained in Part II of the Employment Rights Act 1996, with those on the rights contained in Part I of that Act.

He went on to state:

‘There is no good – or even, frankly, comprehensible – policy reason for carving out from the jurisdiction of the ET one particular kind of dispute necessary in order to resolve a deduction of wages claim. On the contrary, to do so would be incoherent and would lead to highly unsatisfactory procedural demarcation disputes. ETs are well capable of construing the terms of employment contracts governing remuneration and have to do so in many other contexts.’

He concluded that the ET did have jurisdiction in both the Agarwal and Nexus cases to cary out the necessary interpretation of contracts.

The decision is both unsurprising and welcome, given the confusion which previously clouded the issue. It does make it clear that workers claiming unpaid wages, and those representing them, are entitled to do so in the ET, rather than being compelled to bring a case in the county court, with the attendant fees and formalities involved.

Which Court or Tribunal? The Law Commission Consults

The Agarwal  case dealt with above begs questions about which court or tribunal can hear a particular employment law case. That is the area on which the Law Commission is currently seeking views.

The Law Commission is consulting on questions of jurisdiction in the fields of employment and discriminatory law. It is focussing on boundary issues between the courts and the ET. It has issued an excellent paper which analyses ‘the outdated and in some respects arbitrary limits to the Employment Tribunal’s jurisdiction in the employment field.’ In the process, it gives a comprehensive and authoritative account of the current position about where various claims can be brought.

The terms of reference adopted exclude any proposals which would involve the passing of primary legislation, given Parliament’s current pre-occupation with other matters. The consultation closes on 11 January 2019, and is of course open to comments from all interested parties.

Among the questions which it raises are :

•  should the primary time limit for making a claim to the ET be extended to six months, or some other period?
•  where an extension of the primary time limit is currently dependent on its being ‘not reasonably practicable’ to bring a claim in time (as in unfair dismissal), should the ET have discretion to extend the time limit where they find it ‘just and equitable’ to do so?
•  should employment tribunals be given the jurisdiction to enforce the awards which they make for the payment of money, and what powers should they be given to do so?

In addition to these open questions, the Commission puts forward some provisional proposals with which those responding are asked whether they agree. These include:

• a provisional proposal that the current £25,000 limit on the jurisdiction of ETs in breach of contract should be increased
• a provisional proposal that, where ETs currently have jurisdiction to determine breach of contract claims in respect of employees, this jurisdiction should be extended to include breach of contract claims by workers
• a provisional proposal that ETs should be given the power to make orders for contribution between respondents in appropriate case. This would be relevant in a discrimination case where judgement is given against both the employer and an individual guilty of discrimination. 

The consultation is timely and important, and some of the questions which it poses will be looked at in a future edition of this Newsletter. In the meanwhile, the Consultation Paper is well worth reading, and can be found at https://www.lawcom.gov.uk/project/employemnt-law-hearing-structures/.

John Sprack

October 2018

Previous editions of this Newsletter can be found on my website www.johnsprack.co.uk